Scandal Erupts at Standard Chartered

The New York State regulator is accusing the global bank of scheming with Iran to hide 60,000 transactions

Alanna Petroff 6 August, 2012 | 5:48PM

Shares in Standard Chartered (STAN) took a 6% dive on Monday after the main New York State regulator accused the global bank of collaborating with the Iranian government and hiding $250 billion in financial transactions. The bank will now have to convince the state regulator not to revoke its banking license in New York. 

“For almost ten years, Standard Chartered Bank (a wholly owned subsidiary of Standard Chartered,) schemed with the Government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion, and reaping ... hundreds of millions of dollars in fees,” stated the report from the New York State Department of Financial Services.

The report went on to say that these “actions left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity.”

"We are disappointed about the allegations," says Morningstar banking analyst, Erin Davis. "We’ve historically seen Standard Chartered as among the best managed, most risk-averse global banks, and the New York report seems to indicate that Standard Chartered didn’t stand apart from the rest of the industry as much as it just didn’t get caught. We’re especially worried about the allegations that senior management knew about these risks and tolerated actions to cover them up, rather than swiftly eliminating them," she said.

"At the same time, we note that the allegations cover activities through 2007, when the bank was under different senior leadership than now and when the banking industry generally had much more of a cowboy culture. We’ll closely watch current management’s response to the allegations as we recalibrate our opinion of the firm," said Davis.

While Standard Chartered shares dropped down on Monday, investors should expect further volatility in the next few days, said Joshua Raymond, chief market strategist at City Index. 

“With the news breaking very late, Standard Chartered banks shares closed down by 6% thanks to volumes in the closing auction. The banks shares are likely to see volatility tomorrow when the shares reopen for trading and investors gauge the likely details and effects of this allegation,” said Raymond.

This new banking scandal came after a relatively uneventful trading day in London. The FTSE 100 made a small 0.4% gain while the FTSE 250 index rallied by 1.1%. The steady gains made throughout the day helped the benchmark FTSE 100 index push back above the 5800 level for the first time since the beginning of May.

To see which companies were the top winners and losers on the FTSE on Monday, look at our Morningstar Heat Map.

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Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Standard Chartered PLC750.30 GBX-0.68
About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.